Factories in U.S. Show Resilience as Production Rises: Economy

A bourbon barrel being created at the Brown-Forman Cooperage in Louisville, Kentucky. Manufacturing, which makes up about 75 percent of total production, rose 0.7 percent last month, reversing the prior month’s decline. Photographer: Ty Wright/Bloomberg

July 17 (Bloomberg) -- Industrial production increased in
June, paced by gains among auto and machinery makers that may
ease concern some of the drivers of the U.S. economic expansion
were floundering.

Output at factories, mines and utilities rose 0.4 percent
last month after a revised 0.2 percent drop in May that was
larger than previously reported, according to Federal Reserve
data issued today in Washington. Other figures showed consumer
prices were unchanged and homebuilder confidence jumped.

Fed Chairman Ben S. Bernanke today acknowledged the
recovery had lost momentum in the first half of the year as a
result of the European crisis and the prospect of fiscal
tightening. Factories still face challenges of a slower global
economy and an American consumer hobbled by 8.2 percent
unemployment and stagnant income growth.

“Production is showing some signs of life,” said Robert
Brusca, president of Fact & Opinion Economics in New York, who
correctly projected the gain in output. “If you look at all of
the data, what you see is an economy that is mixed. The
industrial production report is one of the stronger pieces of
data we have.”

Stocks fluctuated between gains and losses as Bernanke, in
testimony before the Senate, refrained from detailing specific
steps the central bank could take to boost the world’s largest
economy. The S&P 500 Index was at 1,353.53 at 11:42 a.m. in New
York, down less than 0.1 percent from yesterday’s close.

Bernanke’s View

“The U.S. economy has continued to recover, but economic
activity appears to have decelerated somewhat during the first
half of this year,” Bernanke said. The Fed is “prepared to take
further action as appropriate to promote a stronger economic
recovery,” he said, echoing the policy makers’ statement
following their last meeting in June.

The cost of living was little changed in June, underscoring
Fed expectations that inflation will remain under control,
another report today showed. No change in the consumer-price
index followed a 0.3 percent drop in May, according to Labor
Department data. The measure matched the median forecast of
economists in a Bloomberg News survey. The so-called core
measure that excludes volatile food and fuel costs rose 0.2
percent for a fourth month.

Another report today showed confidence among homebuilders
climbed in July to the highest level in five years, indicating
further improvement in residential real estate. The National
Association of Home Builders/Wells Fargo sentiment index rose 6
points to 35 this month. The gauge exceeded the most-optimistic
projection in a Bloomberg survey of 46 economists. Readings
below 50 mean more respondents said conditions were poor.

Builder Sentiment

The sentiment reading was the highest since March 2007 and
this month’s jump was the biggest since September 2002.

Elsewhere today, German investor confidence declined in
July for a third month as the euro area’s debt crisis and
cooling global demand dimmed the economic outlook.

Economists forecast industrial production would climb 0.3
percent, according to the Bloomberg survey median. Projections
from the 81 estimates ranged from a decline of 0.8 percent to an
increase of 0.9 percent. May’s industrial production figure was
previously reported as a 0.1 percent drop.

Manufacturing, which makes up about 75 percent of total
production, rose 0.7 percent last month, reversing the prior
month’s decline.

Auto Sales

Autos, a recent source of manufacturing strength, sold at a
14.1 million annual rate in June, up from the 13.7 million rate
in May that was the weakest this year, according to data from
Ward’s Automotive Group.

Factory output excluding production of vehicles and parts
climbed 0.6 percent after dropping 0.5 percent. Output of
business equipment increased 1.6 percent after a 0.1 percent
gain in May, a sign business investment was holding up.

Today’s report contrasts with figures released earlier this
month that showed manufacturers curbed production in June. The
Institute for Supply Management’s manufacturing index, a
national barometer of factory activity, unexpectedly shrank, the
first contraction in three years. The index’s measures of
orders, production and exports also dropped to three-year lows.

“The economic and political headwinds we’ve been facing,
particularly in Europe, have not been easy to overcome,” Joseph
Gingo, chairman and chief executive officer of plastics-maker A
Schulman Inc., said during a July 10 earnings call. “I don’t
see the economic climate for a while improving, dramatically at
least. And I think a lot of people are going to become stressed
as they were in 2009.”

Output Cooling

The Fed’s data today also showed that manufacturing, while
expanding and contributing to growth, has lost some momentum.
Factory production climbed 0.7 percent in the three months ended
June, compared with a 1.2 percent gain in the first three months
of 2012.

“Growth has certainly downshifted,” said Jim O’Sullivan,
chief U.S. economist at High Frequency Economics in Valhalla,
New York. “There has clearly been a slowing. Not a collapse,
but a slowing.”